Average house prices decline nationwide

Sunday

Nov 27, 2011 at 12:01 AM

House prices nationally dropped about $1,000 a month over the past year, according to the latest government figures.

The survey by the Federal Housing Finance Agency also found that the average price of new and existing homes sold in the third quarter fell in 21 of the 32 markets studied -- in nine of those markets, it fell by double digits.

Overall, the average house price sank 3.5 percent nationally, from $327,500 to $316,200. That's an $11,300 hit to the typical homeowner's bottom line.

Fortunately, real estate values are a product of local variables, not national ones. Just because prices are down across the country doesn't mean they've fallen in your neighborhood, or even in your town.

In fact, in about a dozen of the metro areas studied, prices were up, some quite substantially. Indianapolis registered a whopping 37 percent gain, for example, while Chicago saw a 27 percent jump and Philadelphia notched nearly a 25 percent improvement.

Of course, such huge bounces upward are more a product of greater-than-usual activity in the higher price brackets than of actual inflation. So it would be wrong to read too much into these gains.

At the same time, the figures do indicate improving markets where buyers are active, especially at the higher end of the price spectrum.

Large declines like the ones recorded in Virginia Beach and San Antonio (down 27 percent), Phoenix (off 19 percent) and Milwaukee (down 18 percent) aren't necessarily signs of a market where the bottom has dropped out, either. Rather, it's likely that more houses than normal have sold in the lower price brackets.

To get an idea of what's happening in your neck of the woods, you have to drill down -- beyond the national numbers, past the figures for your metropolitan area, beyond even the tallies for your county. Again, all real estate is local, so you must find out what's happening on your street or in your community to get the most accurate picture of your home's value.

The monthly Mortgage Interest Rate (MIR) survey by the Federal Housing Finance Agency is a good place to start, because it covers the nation's 32 largest metro areas.

Not to be confused with the agency's House Price Index (HPI), which receives more publicity, the MIR study is the one the government uses to set the limit on loans that can be purchased by Fannie Mae and Freddie Mac, the two quasi-government enterprises that make sure mortgage lenders never run out of money.

Because of the way the rules are written, the limit on loans that can be insured by the Federal Housing Administration also is determined, albeit indirectly, by the survey's findings.

The HPI is a weighted, repeat-sale index measuring average house price changes in repeat sales or refinancings on the same property. Like all such measures, it has several shortcomings.

For one thing, it goes down only to the regional level. For another, it does not include the sale of new houses, which generally are the price leaders in most local markets. If builders are raising their prices, individual sellers usually can raise theirs.

Also, HPI covers only properties whose mortgages have been purchased or securitized by Fannie Mae and Freddie Mac. Nowadays, most loans pass through the two secondary market institutions. But years ago, the percentage wasn't nearly as great, so the number of repeat sales covered by the study is somewhat limited.

But the Monthly Interest Rate survey, which is the survey quoted here, isn't without fault, either. While it includes information reported by all variety of lenders on mortgage rates, loan terms and house prices, it doesn't include loans backed by the FHA or VA. As a result, it skews a little high because those mortgages tend to be for lesser amounts than conventional loans. Also, the tendency toward the high side is exacerbated by the fact that the study includes so-called jumbo mortgages that are above the Fannie Mae-Freddie Mac-FHA limits. Such loans are not included in the HPI.

The MIR survey covers new and existing house sales. And it drills down.

With that explanation in mind, here's a look at the FHFA's third-quarter numbers from its Monthly Interest Rate survey:

Of the country's 32 biggest markets, San Francisco remains supreme. Even though the average there dipped 3.8 percent, from $624,800 in the third quarter of 2010 to $600,800 in the same period this year, the Bay Area is still the most expensive spot in the country to buy a house.

Two other major California markets are next on the Top 10 list, also despite falling prices. In San Diego, the average dropped 12.3 percent, from $584,100 to $512,300. The slide was a much more tolerable 0.6 percent in Los Angeles, where the average slid from $493,900 to $490,800.

(The fourth major California region, Sacramento, is no longer a Top 10 market. The average there is now just $286,000, a 14.4 percent skid from $334,000 a year ago.)

The sprawling New York City market is the fourth-costliest place in the current survey. The average in the Big Apple is currently $480,300, down 3.3 percent from $496,800 at this time last year.

Seattle slipped ahead of Washington, D.C., to take the fifth position on the list. The average in the Puget Sound area is $445,000, a gain of 1.6 percent from $437,800. The nation's capital, on the other hand, saw its average slip 11.5 percent, from $484,500 to $428,900.

Rounding out the list are Philadelphia at $402,000, a 24.5 percent leap from $322,800 in last year's third quarter; Boston at $401,200, a 9 percent improvement from $368,000 12 months ago; Denver at $335,700, down 4.2 percent from $350,300; and Portland at $332,100, off 5.1 percent from $349,800.

Note that only three of the 10 most expensive places -- Seattle, Philadelphia and Boston -- registered higher prices in the survey period.

At the other end of the house price continuum, once high-flying Las Vegas is now the least expensive of the 32 markets in the survey. The average in Sin City is now a mere $165,500, a dip of 4.9 percent from $174,100 a year ago.

Lew Sichelman has been covering real estate for more than 30 years. He is a regular contributor to numerous shelter magazines and housing and housing-finance- industry publications. Email him at lsichelman@aol.com.